$28 Million Conservation Tax Credit Deal Blows Up

The Virginia Department of Taxation has denied $28 million in tax credits claimed for conservation easements set up by the Silver Companies as part of Celebrate Virginia, a major mixed-use project in the Fredericksburg area. Silver Companies had sold most of the credits to private investors at about 50 cents on the dollar.

Last week, reports Rusty Dennen with the Free Lance-Star, the tax department sent letters to hundreds of those investors, informing them that the tax breaks could not be used. The Silver enterprise has not decided whether to file an administrative appeal or go to court.

In its letter, Taxation did not provide any reason for the denial. But the action follows an initiative in which the agency has been checking assessed values on some large easement parcels around the state to see if any had been overvalued or were ineligible for inclusion in the conservation program.

Conservation easements are a centerpiece of Gov. Timothy M. Kaine’s goal to preserve open space in Virginia. However, the General Assembly tighted up the program last year, providing more oversight on land valuation and imposing a $100 million cap on the total amount of credits that can be issued in a given year.

The legislature was perfectly reasonable to cap the amount of tax credits offered — fiscal prudence cannot permit an open-ended and uncontrollable drain on state tax revenue. However, the existence of a cap creates a new set of issues: When the credits are a finite commodity, who qualifies to receive them? Are the credits granted on a first-come, first-serve basis, or do some property owners move to the head of the line? Should a single business like the Silver Companies qualify for $28 million worth? Did the Silver Companies go too far and ask for too much? Or is it being singled out for scrutiny simply for its size — or perhaps for political reasons?

The problem with the conservation-easements tax credit as currently structured is that the most important criterion — the value of the easements to the public — is not even a consideration. As Ed Risse has pointed out, the state is expending public money (in the form of tax credits) to underwrite conservation easements that are established on a haphazard basis, reflecting the idiocyncratic priorities of individual property owners. There is little coherence to the easements — the parcels are scattered randomly across the countryside.

Should there not be some system for establishing priorities for granting the tax credits? Surely easements that preserve valued habitats, or heritage sites, or viewsheds have greater value to the public and warrant the tax credits over easements on some unremarkable piece of property, or even dicier, easements used to facilitate large real estate deals.

The General Assembly needs to revisit this issue.

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9 responses to “$28 Million Conservation Tax Credit Deal Blows Up”

  1. Vivian J. Paige Avatar
    Vivian J. Paige

    You raise some valid points. I agree – the GA needs to look at this issue again and set priorities on the granting of these easements.

  2. Ray Hyde Avatar
    Ray Hyde

    Oh brother.

    If silver has spent the money, how will the investors get their money back? I f they don’t get them back, who will they sue, Silver who probably acted in good (if exaggerated) faith, or the state which pulled the rug?

    Without the money, what happens to the mixed use project, not to mention the conservation land?

    Without any reason for the denial, what happened to sunshine? isn’t the time to check the valuation before the deal is closed?

    In offering tax credits the state is becoming a buyer in what amounts to a sale of development rights. Those rights are transferred or given to a conservation group. In essence the state is giving away valuable property which would ordinarily be auctioned off. It is a little confusing if the development rights are given to VOF, which as I understand it is a quasi governmental agency. In that case the state is giving the easements to its(quasi)self.

    Looked at another way, the state is subsidising the purchase of development rights by the investors, who then give them away to get a tax break.

    Either way, the state is buying something that is then thrown away or sits unused. In addition, the government is abdicating land use authority over the land in such a way to prevent future voters from having a say in its eventual future.

    It would be better if they just bought the land. It would eliminate all the thorny questions Jim Bacon raises.

    But here is the real killer: “The problem with the conservation-easements tax credit as currently structured is that the most important criterion — the value of the easements to the public — is not even a consideration. As Ed Risse has pointed out, the state is expending public money (in the form of tax credits) to underwrite conservation easements that are established on a haphazard basis, reflecting the idiocyncratic priorities of individual property owners. There is little coherence to the easements — the parcels are scattered randomly across the countryside.”

    This is the mirror image of the idea that development happens in a haphazard manner across the countryside – depending on the priorities of the owners, who happen to be mortals.

    It is also the mirror immage of the idea that where development is prohibited through zoning – where the owners may be unwilling participants in an unpaid for and undeclared conservation program – are also equally haphazardly placed.

    All of these are interlocked. And while the people involved are mortals, if there is ever a system for establishing priorities, that system will not be and it will therefore be prone to causing abuse by virtue of eliminating “idiosyncratic” priorities.

    If it comes to that level of control, oversight, and community involvement, then every homeowner or property owner is in jeopardy of being conserved to death.

    Surely some land is more valued for preserving habitat, viewshed, watershed, etc. Part of that value comes from its scarcity as a result of surrounding developments, so all these things are truly interlocked.

    The obvious answer is for the government to buy that land which its constituents claim is most valued and most endangered, and then send the constituents the bill.

    Pretty soon, they would become a lot more careful in setting the priorities for and demanding what it is they want saved.

    That is the system we have, and it works remarkably well as long as you let it. It is only when you sart buggering it up with phony tax breaks and assessments and shadow owners that it gets confusing and breaks down.

  3. Larry Gross Avatar
    Larry Gross

    There’s always two sides to a story and I’m about to tell you the other side but if you want the short version – it’s what JAB sez about the value of an easement to the public.. and in turn… a little word called “signifcance”.

    It’s the difference between an easement on a piece of land that is more value to the owner than the public and a piece of land that may have tremendous value to the public but that value is hard to determine in a $$$ way.

    These specific parcels of land border the Rappahannock River. The Silver Companies not only agree to set them aside from development but it also agreed to provide as much buffer width between the river and it’s development up on the ridge so as to preserve completely the viewshed from the river when they could have perched restaurants and hotels with “river views” .. which is worth 28 million quite easily.

    Further, there is an active bald eagle nest with two eagles in residence on the easement land.

    I paddled this section of river 3 days ago .. something I do more than a dozen times a year.

    This area. where the eagles are is about 1-2 miles upstream of I-95.

    Ultimately this section of river – with easements on both sides – set aside also by the City of Fredericksburg will be a true Greenway surrounded by a sea of development – and it will be a place not only of Eagles but of Blue Herons… Civil War History, the remains of an earlier canal system and a place where people can bike and hike.

    How do you put a dollar value on this?

    More to the point – if the State rules this arrangement as illegal – what message is being sent to others, especially developers who might want to do the right thing and preserve buffers on their development.. if the state is going to step in and nix it?

    I’m not saying that they should not go after bogus appraisals and land that is swampland and/or land that a private owner is setting aside just to evade personal taxes..

    .. but how do we differentiate between land that is truly “significant” in terms of value to the public and land that is not?

    This is an example of a well-intentioned law that went awry because it did not have enough safeguards and specificity in it and now .. we could completely lose the who idea behind it…

  4. Ray Hyde Avatar
    Ray Hyde

    The way you describe it, $28 million sounds like chump change. Maybe we should paddle the tax department up there and then ask a few pointed questions.

    How much you want to bet that the tax department move was prompted by a complaint?

    Here’s a gedanken experiment. Imagine that the river and the easement land simply wasn’t there, that the whole place was just ordinary land. And suppose that Silver proposed the exact same development as the one that was approved on this ordinary land. What do you suppose the likeliehood is that it would be approved, absent any possibility of gaining significant conservation land as a quid pro quo?

    If it is a good development then it ought to stand on its own merits, and we should find some other way to preserve what it is we claim to want.

    There is a lot a beautiful land around: it would be nice if we could save it all, in such a way we could actually enjoy it. But as Jim pointed out, we just can’t afford to write a blank check for everything we want. And as you pointed out, even conservaton agencies some times develop some land in order to save other.

    But the people who own the land can’t afford to stand in line for their chance at a chit, either. After this story gets around they will be a lot less likel to want to, and there will be fewer “investors” (in this case, really factors) to share in the tax wealth.

    Either the land is going to do something, or they will cut their losses and convert it into some other investment that will. Then the new owner will be faced with the same problem, but maybe at a lower price (and a lower assessment). If we can’t afford to preserve the land collectively, we can’t very well expect them to afford it individually.

    Like Mrs. Johnson said, “When you pay $9 million for a property, you expect to be able to do something with it.” Or, like the Berts Bees magnate said when she converted 20,000 acres of hunting leases into conservation and wildlife preserve: “It’s my property, I can do what I want with it.”

    We have all the laws we need to preserve the best places and develop the best places, all we need is the will, and the money. It’s that last part that helps ensure that we prioritize wisely. trying to do it on the cheap just leads to cheap mistakes.

  5. Larry Gross Avatar
    Larry Gross

    re: “even conservaton agencies some times develop some land in order to save other.”

    in this case, this is exactly what happened.

    The developer could have cleared more land… closer to the river but was convinced to not do so, in part, because of his ability to recoup lost development opportunity by using conservation tax credits.

    “beautiful land” is a phrase that, in my mind, confuses and generalizes the difference between land that is significant AND at the same time benefits the public to NOT develop it

    .. as opposed to land that belongs to a private owner who gets a tax advantage essentially by buffering his own property from encroaching development.

    There ARE indeed legitimate questions with regard to whether conserving land truly benefits the public and that would be where the word “significant” would come into play.. when one would enumerate the specific values that would accrue to the public as a result of NOT developing a property.

    And don’t get me wrong.. I’m not generally in favor of setting aside say a 100 acre parcel of “woods” surrounded by 800K homes whose owners essentially don’t want more 800K houses backing up to their backyards…

    But if you’re talking about contiguous land.. that borders a river.. that itself is threatened from the IMPACTs of development such as storm runoff… then it does indeed benefit the public to buffer the river… and protect it for further damage.. as a resource that provides benefits to not only the folks who live in the immediate area.. but folks downstream and ultimately the Chesapeake Bay – that is being seriously damaged by storm water runoff from land development along the major river basins.

    I see the 28 million as no different than the state coming in and buying up (with tax dollars) land along the banks.. to keep it from being further damaged.

    And yes.. I would strenuously object to 28 million spent on any land anywhere… just to set aside not-particularily signifcant land.

    the key is whether the land has significant values … of benefit to the general public.. and taxpayers.

    the problem with the law, as currently written – it basically encourages scams… at the expense of land that should be legitimately protectd.

  6. Ray Hyde Avatar
    Ray Hyde

    Right. And that is why the simpler the rules are the less you have in the way of scams and the more real protection is available.

    You buy the land, you own it, you do as you please with it, conservation included, absent gross, substantial and verifiable damage to your immediate neighbors.

    The reason more real protection is available is because if the state, county, or city buys the land and does nothing with it, that is their right. There will be a lot less grief, and ultimately less cost, and more real benefit to those who enjoy the place, than there will be by creating impositions that, one way or nefarious other, require other people to own and maintain certain types of land on our behalf.

    If you are going to play that kind of game,then you expect people to game the system.

  7. Larry Gross Avatar
    Larry Gross

    On first blush – the idea that someone who owns a piece of land would, in exchange for tax benefits (money), would agree to NOT use it for some purpose that “might” be a benefit to the taxpaying public… seems positively rife with “what ifs” – so I agree with you.

    One might ask – “what if”, the Shennandoah Park was “private” and the owners got tax advantages for not developing it…. even in a way that might benefit the public’s ability to “use” it for sustainable benefits like hiking and sightseeing… would such a thing be deemed acceptable?

    Because.. that is what we are saying with “set aside” land still owned privately.

    Some of this came from the idea that development… “destroys” green vistas…. and so.. it seemed logical to provide incentives to preserve those green vista’s… in effect.. the only thing that the public gets – is the green vista.

    This is not … useless by a long stretch for anyone who has driven Route 17 near Paris, Va where the vast pastures and woods that climb that north/south ridge are gorgeous – and in my mind – worthy of easements.

    But … we’re back to that word – significance. We can define it for that ridgeline – I think – but I have a much harder time with it…say across the street from a new townhouse development….in an area where more housing is needed.

    The Feds have comprehensively defined the word “significance” for historic land, indeed for all land that may be obtained by the Feds – which would include not only parks but new highways or even things like Navy landing fields in North Carolina.

    My opinion stands. The law had good intentions… but left some 18-wheeler size loopholes for folks who would use the law for their own benefit and not the public benefit.

  8. Ray Hyde Avatar
    Ray Hyde

    “the only thing that the public gets – is the green vista.

    This is not … useless by a long stretch for anyone who has driven Route 17 near Paris, Va where the vast pastures and woods that climb that north/south ridge are gorgeous – and in my mind – worthy of easements.”

    I could not agree with you more,
    but consider a couple of things.

    When you look doan at the Paris valley, you see a series of cadcading ponds, formed by damming the local stream. I suspect they ahve been there for a long time. If you tried to buld one of those ponds today it would be either impossible or prohibitively expensive. Or, you could just do it illegally. But the fact remains that those essential features of that viewscape are mostly impossible today.

    At the far right hand end of the vista you describe is Ashby Glen, barely noticible in the scheme of things. But suppose I built a copy of the USA Today building here. It would be readily visible from Ashby Gap. It might provide more employment than every farm in Fauquier county combined. It might mean that a lot of people would have to commute forty miles less.

    But it would wreck the view fromn Ashby Gap. What is it worth NOT to have that tower here? What is it worth TO have the tower here? What is it worth if it allows 100 “Hobby Farmers” to keep their land, without easements?

    If you go all the way to the bottom of Asby Gap, you might find yourself on Scuffleburg Road. Looking up, on the ridgeline, you would see a fine new home. From that home, you have the reverse view of Paris Valley.

    That home belongs to my friend and neighbor. Should I begrudge him his view? (My home is in a hollow, so I have no view, and no one can see me.) Is his home marginally disruptive of the Valley, just as the USA Today building would be a major disruption?

    If you are looking at Paris Valley, as you describe, a good protion of the land on the left is for sale, and has been for some time. I could be wrong, but it is my understanding that the farm had financial problems and is now for sale, with easements in place.

    Suppose it doesn’t sell.

    Would that imply that the significance of this property from an easement perspective was overstated? Should the easement holder now kick in MORE money (presumably from contributions), because the situation has changed over time? Or should they just say, “Hey, you sold your easements, tough luck, it’s a free market.”?

  9. Larry Gross Avatar
    Larry Gross

    re: Should that valley have a high-rise USA Today building?

    counter question: Should Shenandoah N.P. allow high-rise condos on top or astride Dark Hollow Falls?

    That entire park could be totally staffed and operated easily with the proceeds from selling off the parcel of land around Dark Hollow Falls.

    No longer would it be a dead loss on taxpayer monies…but instead the Feds might actually generate net funds for health care for the folks who live in the Shenandoah Valley and cannot afford health insurance.

    For those reading these words .. with HORROR .. consider Western North Carolina and North Western South Carolina where mountaintop properties are being sold willy nilly including some condos – yep right beside spectacular waterfalls….

    so… I relunctantly agree with Ray that there are serious questions not yet answered with regard to the how/why of conservation easements purchased with taxpayer dollars obstensibly for the public benefit.

    Conservation easements, and PDRs/TDRs in areas of housing growth need to be considered more than simple terms of conservation for conservation sake especially if what you end up with is high-dollar parcels sold for housing – made valuable by the fact that they back up to a conservation easement – set aside for the “public benefit” but the net result walks, talks and acts like prime development property for the wealthy.

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